FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Applicability of Change in Bank Control Act to
Purchase of Asset by FDIC in Its Corporate Capacity

FDIC-84-13

August 3, 1984

Pamela E. F. LeCren, Senior Attorney

The following is in response to your May 16, 1984 memorandum to
Katharine Haygood requesting an opinion as to whether the Change in
Bank Control Act would be triggered under the following circumstances.
FDIC in its corporate capacity holds as an asset a loan in the
approximate amount of $2.2 million to * * *, the holding company for
* * *. The loan, which was originated by * * * was participated
100% to * * *. The loan, was collateralized by 3,946 shares of the
stock of * * * or approximately 97% of the outstanding stock of the
bank. * * * is presently insolvent and the loan is in default.

FDIC received a tentative offer for the loan which, as you indicated
to me on the phone, has since been withdrawn. That offer did raise the
issue, however, of whether or not any sale by FDIC of the referenced
asset could trigger the Change in Bank Control Act inasmuch as the
purchaser would in all likelihood foreclose on the collateral.

The Change in Bank Control Act which was enacted as an amendment to
section 7 of the Federal Deposit Insurance Act (see section 7(j))
provides that no person may acquire control of any insured bank through
a purchase, assignment, transfer, pledge or other disposition of voting
stock of an insured bank unless the appropriate federal banking agency
has been given 60 days prior written notice of the acquisition and
within that time period (or within 90 days if the agency takes a 30-day
extension permitted by the statute)
the agency has not issued a notice
disapproving the proposed acquisition. The time period for issuing a
notice to disapprove may be further extended if the proposed acquirer
has not furnished all the information required to be furnished under
section 7(j)(6) or the agency has determined that any material
information submitted to it is substantially inaccurate. Section
7(j)(8)(B) defines "control" to mean the power to, directly or
indirectly, direct the management or policies of an insured bank or to
vote 25% or more of any class of voting securities of an insured bank.

Section 303.15(c) of FDIC's regulations which implement section 7(j)
of the Federal Deposit Insurance Act provides for certain exempt
transactions, i.e., acquisitions that do not trigger the
prior notice requirement. It is clear that, unless exempt, the
acquisition of 97% of the stock of an insured bank triggers the prior
notice requirements of the Change in Bank Control Act. The only
exemption which may be applicable to the circumstance under
consideration is section 303.15(c)(3). That section exempts the
acquisition of shares in satisfaction of a debt previously contracted
in good faith or through testate or intestate succession or bona fide
gift, provided the acquirer advises the regional director within 30
days after the acquisition and provides such of the information
specified in paragraph 6 of the Change in Bank Control Act as the
regional director requests.

We do not feel, however, that the exemption is available in a
circumstance where a loan collateralized by more than 25% of the stock
of an insured bank is purchased and that loan is in default. In that
instance, the acquisition of the loan and the acquisition of the shares
is virtually inseparable due to the default status of the loan at the
time of its purchase. The situation is to be distinguished from one in
which, for example, individual X makes a loan to individual Y, the loan
is collateralized by more than 25% of the stock of an insured bank,
and a third party purchases the loan from X in good faith prior to any
default on the loan. In that instance, we would feel that the third
individual could take advantage of the exemption in section
303.15(c)(3) should the loan subsequently go into default and
foreclosure on the collateral
occur.